Further pump-priming on cards as exports fall

PUBLISHED : Wednesday, 14 January, 2009, 12:00am
UPDATED : Friday, 28 October, 2016, 9:17am

Overseas sales decline most in 10 years on faltering demand

Mainland exports dropped the most in almost a decade last month, a decline expected to continue, prompting Beijing to augment its economic stimulus plan in the light of slack demand from the United States and Europe.

Exports fell for the second consecutive month, by 2.8 per cent to US$111.2 billion from December 2007, steeper than the 2.2 per cent reduction in November.

Imports slumped 21.3 per cent to US$72.2 billion, following a 17.3 per cent decline in November, the Administration of Customs said yesterday.

The monthly trade surplus rose 71.8 per cent to US$38.98 billion, the second-highest after November's US$40.1 billion.

Meanwhile, the country's foreign reserves rose to US$1.95 trillion, the People's Bank of China said yesterday, but growth slowed markedly as trade weakened.

Reserves grew US$45 billion over the last three months of the year, the central bank said in a quarterly report.

Exports contracted less than many anticipated, but economists expected the shrinkage would spill at least into the first three months of this year.

This, they said, would put pressure on policymakers to strengthen domestic demand and resume cutting interest rates.

On a full-year basis, exports rose 17.2 per cent to US$1.42 trillion and imports grew 18.5 per cent to US$1.13 trillion, yielding a 13.5 per cent larger surplus at US$295.45 billion last year.

'The exports slump won't bottom out until the middle of the year when the global economy starts to improve,' said Barclays Capital Asia head of China research Peng Wensheng.

PBOC governor Zhou Xiaochuan said earlier in the week that the mainland's ability to meet this year's 8 per cent growth target depended on the global economy.

The mainland's top three markets - the US, European Union and Japan - all bought fewer Chinese-made consumer goods last month.

The US led with a 4.15 per cent decline, while EU purchases were down 3.4 per cent and Japan's were 2.46 per cent lower than a year ago.

Merrill Lynch economist Lu Ting did not think the mainland's export slump would be as severe as its neighbours'. Taiwan exports fell 41.9 per cent last month and South Korea's dropped 23.3 per cent.

Nevertheless, weakened Chinese exports would force Beijing to boost efforts to increase domestic consumption, raising the prospect that the central bank could cut interest rates by at least 81 basis points this year and boost credit growth, Mr Lu said.

Morgan Stanley economist Wang Qing estimated interest rates would be cut by 135 basis points by the middle of this year after the five rounds of interest rate cuts in the past three months.

Last month, the mainstream processing trade, which refers to factories using imported materials and components to produce and assemble goods for export, was hit the hardest, dropping for the first time in years.

The sector generated 13.3 per cent less exports at US$40.45 billion, or 36.27 per cent of the total.

The decline was consistent with the massive number of factory shutdowns and job losses.

The Federation of Hong Kong Industries forecast the demise of about 20 per cent out of the 55,200 Hong Kong-funded processing trade factories in the country's industrial powerhouse, the Pearl River Delta, and an unemployment rate of 25 per cent of the 9.8 million migrant workers they employed.